Question 1

Which of the following is not true of covert collusion?

Accepted Answer

A)  It occurs when formal cartels are not legal.
B)  It has been historically referred to as "gentlemen's agreements."
C)  Numerous examples of it have been found in the United States.
D)  No case of it has been proven in the United States.

Question 2

Mutually cancelling advertising by oligopolistic firms tends to improve economic efficiency in the industry.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following nations is not a member of the OPEC oil cartel?

Accepted Answer

A)  Iraq
B)  Iran
C)  Venezuela
D)  Norway

Question 4

The first mover in a sequential game always has the advantage over the second mover.

Accepted Answer

A) True 
 B)False

Question 5

Advertising may be an efficiency-enhancing activity when it results in the following, except when it

Accepted Answer

A)  enhances competition among sellers.
B)  facilitates the introduction of new products.
C)  increases sales thereby allowing firms to obtain economies of scale.
D)  makes buyers more brand-attached, making their demand less elastic.

Question 6

In some games, one firm may avoid taking advantage of another firm because it knows that the other firm can take advantage of it in subsequent games.This behavior is called

Accepted Answer

A)  the first-mover advantage.
B)  reciprocity.
C)  price leadership.
D)  preemption of entry.

Question 7

The likelihood of a cartel being successful is greater when

Accepted Answer

A)  firms are producing a differentiated, rather than a homogeneous, product.
B)  cost and demand curves of various participants are very similar.
C)  the number of firms involved is relatively large.
D)  the economy is in the recession phase of the business cycle.

Question 8

In the US market, people often refer to the "Big Three" in autos and the "Big Four" in accounting.These terms suggest that these two industries are

Accepted Answer

A)  purely competitive.
B)  monopolistically competitive.
C)  monopolies.
D)  oligopolies.

Question 9

Industries X and Y both have four-firm concentration ratios of 70 percent, but the Herfindahl index for X is 2,500, while that for Y is 2,000.These data suggest

Accepted Answer

A)  greater market power in Y than in X.
B)  greater market power in X than in Y.
C)  that X is more technologically progressive than Y.
D)  that price competition is stronger in X than in Y.

Question 10

In game theory, a "payoff matrix" is a table that shows the following, except

Accepted Answer

A)  the profits to each firm or player that would result from various strategycombinations.
B)  the target payoffs that each firm or player is aiming for in their different strategies.
C)  the interdependence of the firms' or players' profits, based on their alternative actions.
D)  the alternative results that the firms or players would get, based on their actions and those of others.

Question 11

Oligopolistic firms engage in collusion to

Accepted Answer

A)  minimize unit costs of production.
B)  realize allocative efficiency, that is, the P = MC level of output.
C)  earn greater profits.
D)  increase production.

Question 12

Use your basic knowledge and your understanding of market structures to answer this question.Which of the following companies most closely approximates a homogeneous oligopolist in a highly concentrated industry?

Accepted Answer

A)  Kellogg's
B)  Pittsburgh Plate Glass
C)  Ford Motor Company
D)  Starbucks Coffee

Question 13

In game theory, a credible threat of coercion by a dominant firm tends to

Accepted Answer

A)  prevent cheating in collusive agreements.
B)  increase the incentives to cheat.
C)  reduce discipline among cartel members.
D)  discourage collusive agreements.

Question 14

A firm in an oligopoly is similar to a monopoly in that

Accepted Answer

A)  both firms do not face competition from others.
B)  both firms could have significant market power and control over price.
C)  both firms face very inelastic demand for their products.
D)  both firms do not need to advertise.

Question 15

Repeated games with reciprocity tend to reduce the payoffs for both players, as compared to a one-time game with a similar payoff matrix.

Accepted Answer

A) True 
 B)False

Question 16

Mutual interdependence does not refer to which of the following?

Accepted Answer

A)  A firm must consider how rival firms would respond to its own decisions and actions.
B)  A firm's profit depends not just on its own decisions and actions but also on those of other firms.
C)  Entry by new firms into the industry tends to shrink existing firms' profits.
D)  Competing firms respond to one another's pricing, production, or marketing decisions.

Question 17

Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000.Most likely, this industry would achieve

Accepted Answer

A)  both productive efficiency and allocative efficiency.
B)  allocative efficiency but not productive efficiency.
C)  neither productive efficiency nor allocative efficiency.
D)  productive efficiency but not allocative efficiency.

Question 18

The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because

Accepted Answer

A)  industry price leaders often select a price equal to marginal cost.
B)  over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive.
C)  increased output due to persuasive advertising may perfectly offset the restriction of output caused by monopoly power.
D)  many oligopolists sell their products in monopolistically competitive or even purely competitive industries.

Question 19

In some games, one player or firm moves first and commits to a strategy to which the rival player or firm will subsequently respond.Such games are called

Accepted Answer

A)  repeated games.
B)  multi-period games.
C)  sequential games.
D)  credible games.

Question 20

In repeated games, players may be willing to accept lower payoffs in the short run in exchange for greater net payoffs over the long run.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly and Strategic Behavior

In some games, one firm may avoid taking advantage of another firm because it knows that the other firm can take advantage of it in subsequent games.This behavior is called

Correct AnswerverifiedShow Answer

The first mover in a sequential game always has the advantage over the second mover.

Correct AnswerverifiedShow Answer

Repeated games with reciprocity tend to reduce the payoffs for both players, as compared to a one-time game with a similar payoff matrix.

Correct AnswerverifiedShow Answer

In game theory, a credible threat of coercion by a dominant firm tends to

Correct AnswerverifiedShow Answer

Mutually cancelling advertising by oligopolistic firms tends to improve economic efficiency in the industry.

Correct AnswerverifiedShow Answer

In the US market, people often refer to the "Big Three" in autos and the "Big Four" in accounting.These terms suggest that these two industries are

Correct AnswerverifiedShow Answer

Mutual interdependence does not refer to which of the following?

Correct AnswerverifiedShow Answer

Advertising may be an efficiency-enhancing activity when it results in the following, except when it

Correct AnswerverifiedShow Answer

In game theory, a "payoff matrix" is a table that shows the following, except

Correct AnswerverifiedShow Answer

In some games, one player or firm moves first and commits to a strategy to which the rival player or firm will subsequently respond.Such games are called

Correct AnswerverifiedShow Answer

A firm in an oligopoly is similar to a monopoly in that

Correct AnswerverifiedShow Answer

In repeated games, players may be willing to accept lower payoffs in the short run in exchange for greater net payoffs over the long run.

Correct AnswerverifiedShow Answer

Oligopolistic firms engage in collusion to

Correct AnswerverifiedShow Answer

The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because

Correct AnswerverifiedShow Answer

Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000.Most likely, this industry would achieve

Correct AnswerverifiedShow Answer

Which of the following is not true of covert collusion?

Correct AnswerverifiedShow Answer

Use your basic knowledge and your understanding of market structures to answer this question.Which of the following companies most closely approximates a homogeneous oligopolist in a highly concentrated industry?

Correct AnswerverifiedShow Answer

The likelihood of a cartel being successful is greater when

Correct AnswerverifiedShow Answer

Which of the following nations is not a member of the OPEC oil cartel?

Correct AnswerverifiedShow Answer

Industries X and Y both have four-firm concentration ratios of 70 percent, but the Herfindahl index for X is 2,500, while that for Y is 2,000.These data suggest

Correct AnswerverifiedShow Answer

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